Whether you’re new to cryptocurrency or you have some trading experience, understanding and being able to read the markets can be incredibly difficult. Like all markets, from centralized currencies and other securities to assets and properties, the price of cryptocurrency fluctuates based on a large number of factors.
However, these variables can differ wildly from those that determine the price of more traditional currencies, securities, and assets when it comes to cryptocurrency. We have seen the expansion of hundreds of different crypto projects and how traders are using signals to trade virtual currencies. Nonetheless, not all the crypto trading signals channels have the same accuracy or services.
How does the value of cryptocurrency change?
As you may know, traditional markets, like those mentioned above, react to what’s going on in the world at a particular time. This means they fluctuate based on various factors, including domestic and international inflation rates, interest rates, general economic performance, and political events. However, cryptocurrency markets are not affected by these variables in quite the same way. Instead, the value of these digital currencies, which includes the likes of Bitcoin, Dogecoin, and Ethereum, is determined by a series of internal factors and external factors.
Â
As completely decentralized forms of currency with markets that are open 24 hours a day, seven days a week, to put it in its most simple terms, the value of cryptocurrency changes based on supply and demand. This is to say, when a more significant number of people want to buy into a specific currency, the price will naturally increase, while when demand is low, prices will drop. While this might sound basic on its face, understanding the individual internal and external factors that cause demand to rise and fall is more challenging. However, this is the key to understanding better why the value of cryptocurrency is so volatile.
Internal factors that can cause the value of cryptocurrency to change include:
- The actions of traders when middle-sized and significant traders buy or sell in quantity, market value will react accordingly. Â
- Crypto competition happens when the price of one cryptocurrency increases, says Bitcoin. For example, the cost of competing cryptos, e.g., Ethereum, Dogecoin, etc., is likely to drop.
- If people, companies, and shops start to accept specific crypto calls as a legitimate form of payment, demand and value are likely to increase. If they reject crypto, direction and deal will drop.
- Trade marketplace acceptance with a legitimate trading platform starts accepting a new cryptocurrency and makes it easier to trade. Its legitimacy increases. It can increase demand and value. Again, if a trading platform rejects a crypto call, its value is likely to suffer.
How does cryptocurrency gain value?
As discussed above, traders are motivated to either invest or sell cryptocurrency based on how they perceive the value of the digital currency at a specific time. This means, for a cryptocurrency to gain value, it must display potential in the form of a positive scale of community involvement. It is in demand concerning the currency’s relative scarcity. It has good coin utility – the ability to use it efficiently, both in user platforms and places that accept it as a legitimate form of payment.
Why does cryptocurrency drop?
Many factors can affect the rise and fall of cryptocurrency value. Some of which we have looked at already. While several additional factors can see the value of cryptocurrencies drop in the blink of an eye. These include:
Sudden fear, uncertainty, and doubt
Typically triggered by negative media coverage, these factors can cause crypto holders to panic, lose faith, and sell their coins short of their actual value. If this gains traction and people sell en masse, markets will suffer, and cryptocurrency value will drop rapidly.
Coin dumping
If a large amount of a specific cryptocurrency is reintroduced into the market at one time – for example, after significant quantities are seized from illegal operations by the authorities and auctioned off back into the market – prices naturally fall as supply is increased.
Poor platform or software management
When a crypto platform suffers from technical difficulties or a glitch or error in the software, traders can lose confidence in the currency and sell.
Although a cryptocurrency’s perceived value can be highly volatile and quickly impacted both positively and negatively by a combination of the internal and external market-driving factors mentioned above, the bottom line is that cryptocurrencies gain value when people and organizations use and accept it as a legitimate form of payment. However, this is much easier said than done with such volatile security like cryptocurrency, and many factors can just as easily cause the value and reputation of a digital currency to drop rapidly.
